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The Influence of Ownership and Compensation Practices on Charitable Activities

50 Pages Posted: 18 Dec 2009 Last revised: 30 Sep 2013

Leslie Eldenburg

University of Arizona

Fabio B. Gaertner

University of Wisconsin - Madison - Department of Accounting and Information Systems

Theodore H. Goodman

Purdue University - Department of Accounting

Date Written: September 30, 2013

Abstract

Recent accounting research provides evidence that similar profit-based compensation incentives are used in for-profit and nonprofit hospitals. Because charity care reduces profits, such incentives should lead for-profit hospital managers to reduce charity care levels. Nonprofit hospital managers, however, may respond differently to the same incentives because they face a different set of institutional pressures and constraints. We compare the association between pay-for-performance incentives and charity care in for-profit and nonprofit hospitals. We find a negative and significant association between charity care and our proxy for profit-based incentives in for-profit hospitals and no significant association in nonprofit hospitals. The evidence in the nonprofit sample that profit-based incentives have no significant effect on charity care levels suggests that institutional differences inherent in the nonprofit setting mitigate the negative effect of profit-based incentives on charity care.

Keywords: Nonprofit hospitals, charity care, ownership structure, profit-based incentives

JEL Classification: I18, J33, L33, M40

Suggested Citation

Eldenburg, Leslie and Gaertner, Fabio B. and Goodman, Theodore H., The Influence of Ownership and Compensation Practices on Charitable Activities (September 30, 2013). Contemporary Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1523971 or http://dx.doi.org/10.2139/ssrn.1523971

Leslie G. Eldenburg (Contact Author)

University of Arizona ( email )

McClelland Hall Room 301H
Tucson, AZ 85721
United States
520-621-4585 (Phone)
520-621-3742 (Fax)

Fabio B. Gaertner

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States

Theodore H. Goodman

Purdue University - Department of Accounting ( email )

Krannert School of Management
West Lafayette, IN 47907-1310
United States

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